20 December 2018
4 exits as trade and PE buyers remain active
If the adage about waiting for a bus holds true, then the last three weeks has been a purple patch for YFM as we have realised four investments for up to 4.2x.
Combined with further investments into the remaining portfolio total deal activity topped £100 million in December. The backcloth of the most uncertain times in the UK’s recent political history, has not dimmed the ability of the UK’s small businesses to generate value, employment and boost exports.
So who is buying?
“It has been a real mix” said Ian Waterfield one of YFM’s partners involved in the sales of Mangar Health and Gill Marine. He added “Both buyers for these businesses were from overseas, one a French-based corporate and the other a syndicate comprising US and New Zealand investors. While the UK political establishment was tying itself in knots and the markets were reacting, in both cases the sales processes continued and reached successful conclusions two days after the original Brexit vote in Parliament was due to take place. This is testament to the strength of the businesses and the global opportunity that both present.”
“It hasn’t just been overseas buyers still looking to invest in the UK” said Jamie Roberts, a YFM partner who guided through the sale of GTK to AiM-listed Volex plc. “It was great to see demand from a UK quoted business prepared to invest significant cash in an acquisition” he commented. “Whilst we can be prepared to take paper on an exit it’s always better for our investors to be able to deliver cash and with Volex paying 85% of the consideration in cash this suited all of us”.
Colin Granger who was involved in the sale of Indigo Belcom had a different tale. “We did see interest from trade buyers, but in this case we had half a dozen mid-market Private Equity bidders who all saw potential that meant they trumped the trade offers. It was interesting though that the trade offers were again principally from overseas, with the most significant being from mainland Europe”. In the end though it was the UK based private equity houses that won the day with GCP completing the deal. “This was a great deal for us delivering over 4x multiple; but the team were also able to de-risk, which really helped them, as with value still to play for they go on a further buy and build strategy from a position of financial security”.
What was the attraction?
“Whilst it might sometimes seem obvious, these businesses had all developed significantly over the time that YFM had been involved” commented David Hall MD of YFM. “On average we’ve been invested just under five years in these businesses. In that time they’ve undergone a fair amount of change, some of which was envisaged at the point we invested, but quite a lot not.” This is not untypical of the change that faces the UK’s small businesses, but there were some specific factors in each case that help build resilience that led to the value increase and ultimately attracted the different buyers.
GTK had a UK-base but imported from China. We helped them set up their own eastern European manufacturing facility that gave more control over their supply chain. This dual footprint had a real attraction to the buyer.
Indigo Belcom was “just” Indigo at the point of investment. Whilst demand for its telecom services to the mobile and fixed line operators was undoubtedly growing, diversifying its customer base through an acquisition of a business supporting data centres was always likely to be value-enhancing; the risk, as for many small businesses, was in the execution but the team really delivered on this.
Gill Marine is a Nottingham based designer and manufacturer of branded technical apparel. It’s real transformation since YFM’s involvement had been the acquisition of its US distributor which cemented its access to its largest market. Taking that step for some small businesses can seem a big leap, but the support from an external investor makes a big difference.
Mangar Health has always had a strong product presence for its lifting equipment in the UK local authority and ambulance markets. Further growth has been achieved in care homes and improved distribution in Europe and the US. Its management team was expanded with a strong emphasis on promoting from within.
There’s no one recipe for success, but by continuing to innovate, deliver well and, perhaps occasionally be that bit braver than you thought you were going to be it can be, surprising how much you can do.
This financial promotion has been issued and approved for the purposes of Section 21 of the Financial Services and Markets Act 2000 by YFM Private Equity Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 122120). YFM Private Equity is the investment adviser to the VCTs and is a wholly owned subsidiary of YFM Equity Partners LLP (OC 384467) Registered in England and Wales. Registered office: 5th Floor, Valiant Building, 14 South Parade, Leeds, LS1 5QS.